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December 2016

Australian rates on hold for a while

Published: Tuesday 06 December 2016

  • Australian rates on hold for a while
  • Potential US base rate movement keeps USD on back foot
  • Italian referendum action appears to be over for now.  

The Italian referendum caused a flurry of euro selling and market turbulence, but it has all but faded away now. That isn’t the end of the story though. Two banks; Banca Monte dei Paschi di Sienna and UniCredit are, between them, in need of €18 billion in extra funds and need that money by early in 2017. There is a good chance they will get what they need, though, because while the EU wants to look tough and says it is ready to let banks fail, what would that say about the EU at a time when anti-EU sentiment is rife? Hence, the Euro has recovered somewhat. We will get the final figure for the EU’s Quarter Three economic growth this morning and it is likely it will confirm the 0.3% growth seen in the previous quarter. It’s unlikely to change the value of the Euro significantly.
The Reserve Bank of Australia met overnight (GMT) to agree to keep their base rate on hold at 1.5%. The tone of their message was that they are likely to sit on their hands for a while now, as they watch events unfold in both the domestic and global economies. The Australian Dollar weakened on the announcement and the GBP-AUD rate seems set to reach the 1.73 resistance sometime soon. 
US data showed an upturn in America’s service sector. That, plus a fall in oil prices ought to have strengthened the USD, but nervousness ahead of next week’s Federal Reserve Meeting is keeping the USD twitchy. There is a lot of brashness around the expected US interest rate hike on the 14th but not much in the way of ‘money where your mouth is’ activity. The Euro-USD rate is up, as is the GBP-USD rate. This afternoon brings US Productivity and Labour costs data as well as the latest Durable Goods figures. These latter numbers are forecast to be quite poor, so further USD weakness is a possibility.
Other than these items, it is a rather quiet day in the forex markets. That doesn’t mean things won’t be lively, but we’ll have to rely on daft political comments for that. It’s pretty much guaranteed then.

At the party

A limo arrived outside a swanky party and the chauffeur dashed round to the rear door and opened it. Out stepped a stunningly beautiful woman.
She straightened her dress and waited a moment until a large parrot fluttered out from the back seat and landed on her shoulder. At that point the women strutted up the red carpet.
One of the waiting photographers shouted out, “Wow, where did you get that?”
“Tinder”, said the parrot.

Today's Major Economic Releases

Market BST Data/Event Previous Expected
EUR 09:10 EU: Retail Sales Purchasing Managers' Index  48.6 48.6
EUR 10:00 EU: Revised Gross Domestic Product 0.3% 0.3%
CAD 13:30 Canada: Trade Balance -4.1b -2.1b
USD 13:30 US: Revised Non-Farm Productivity 3.1% 3.2%
USD 13:30 US: Trade Balance -36.4b -41.5b
USD 13:30 US: Revised Unit Labor Costs 0.3% 0.4%
CAD 15:00 Canada: Ivey Purchasing Manager's Index 59.7 59.7
USD 15:00 US: Factory Orders month-on-month 0.3% 2.5%
NZD 22:00 Reserve Bank of New Zealand Governor Wheeler speaks    
Daily Currency Analysis by David Johnson

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